Delivering the Second Wave of U.S. LNG Mega-Projects
Posted August 28, 2019
U.S. exports of liquefied natural gas (LNG) – growing to a record 4.8 billion cubic feet per day (bcf/d) in the third quarter of 2019 – have been a catalyst for new natural gas resource development, U.S. pipeline and natural gas processing investments and the U.S. economy.
These exports also are having tectonic global effects on LNG markets, shifting the destination, pricing mechanisms and market liquidity of LNG around the world. And there’s much more to come.
The U.S. Energy Information Administration (EIA) expects U.S. LNG exports to more than double again by 2025, which holds the potential for even greater domestic economic benefits, plus a central, emerging role for U.S. energy leadership in global markets.
Realizing these benefits is critically dependent on the United States’ ability to build and deliver an unprecedented number of multi-billion-dollar U.S. mega-projects over the next several years. When ”demographics are destiny” and the average age of a welder in the U.S. already is over 57 years, we should remain optimistic about the potential to build these projects but also pragmatic about the policies and business environment needed to achieve the goals.
For U.S. LNG exports to grow as EIA projects, key challenges need addressing, including a greater national and regional focus on workforce development and nimble regulatory responses by government agencies, which are essential for mega-projects to come to fruition. Certainly, everything needed to advance these projects – including site preparation, technology, permitting and contracting, regulatory issues including health, safety and environment, as well as marine access and logistics to business execution – must be well considered and managed.
When we map the queue of current and prospective LNG export projects, the tally exceeds 8 bcf/d of projects under construction and another 13 bcf/d that have been approved. By contrast, Australia experienced marked cost escalation with simultaneous development of a similar project queue of more than 8 bcf/d in 2014.
Although any comparison of LNG developments between the U.S. and Australia would be incongruent at multiple levels, we’re talking about big-dollar investments that must be carefully managed to stay on time and budget. In the U.S., a combination of lower natural gas and oil prices beginning in 2015 and the growth of fixed-price or lump-sum turnkey contracts has shifted relatively more budget responsibility to engineering, procurement and construction (EPC) companies. The market needs to sort out the mechanisms for supporting the next wave of projects.
From a broader perspective, the recent U.S. experience with mega-projects could help to enable the coming second wave. For one thing, better support for targeted workforce development, such as industry training and certification programs as well as STEM (science, technology, engineering, mathematics), could help improve labor markets to facilitate mega-project development.
There are many great efforts in this area by individual companies, government and trade associations such as state oil and natural gas associations, as well as API. Still, figuring out the overall needs for various craft and other labor groups across various projects and U.S. regions has been the domain of specialized consultants. Markets generally work the best when information flows freely, so upping our collective game in understanding and communicating these needs should be one objective.
Nearly every LNG and crude oil export project also must engage with the U.S. Army Corps of Engineers for channel widening or dredging, as well as issues related to bridges, canals and other waterways. Continual improvement, coordination, consistency and communication between industry and the corps could further reduce the potential for costly project delays.
Additionally, there is room for continuous learning in management practices, of which there are lessons learned from the first wave of projects. These include increased understanding of potential shortages of key workgroups and the experience of navigating regulatory approval processes, some of which have been employed for the first time in years. The way projects are commercially contracted – and the suite of technical and commercial alternatives available to meet business challenges – also provides a degree of freedom that should help enable simultaneous development of the second project wave.
Finally, there’s learning by doing and an understanding of where fundamental improvements are needed to facilitate project site preparation, supply chains and community collaboration. The progress the U.S. makes in this space will be critical to ensuring that proposed projects can become a reality – along with the myriad economic benefits they hold the potential to bring.
About The Author
Dr. R. Dean Foreman is API’s chief economist, specializing in energy and global business. With a Ph.D. in economics from the University of Florida, he came to API from Saudi Aramco Strategy & Market Analysis in Dhahran, where he managed short-term market monitoring and the long-term oil demand outlook. Foreman has more than 20 years of industry experience in corporate strategic planning, forecasting, finance / risk management and regulatory policy at ExxonMobil, Talisman Energy and Sasol North America.
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